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2012 – The year of living dangerously

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by Jim Quinn
of The Burning Platform
Posted on 8th January 2012 

http://www.theburningplatform.com/?p=27063

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability –  problem areas where America will have neglected, denied, or delayed needed action.” – Strauss & Howe – The Fourth Turning – 1997

IN DECEMBER 2010 I WROTE AN ARTICLE CALLED Will 2012 Be as Critical as 1860?, THAT PONDERED WHAT MIGHT HAPPEN WITH THE 2012 presidential election and the possible scenarios that might play out based on that election. Well, 2012 has arrived and every blogger and mainstream media pundit is making their predictions for 2012. The benefit of delaying my predictions until the first week of 2012 is that I’ve been able to read the wise ponderings of Mike Shedlock, Jesse, Karl Denninger, and some other brilliant truth seeking analysts regarding what might happen during 2012. The passage above from Strauss & Howe was written fifteen years ago and captured the essence of what has happened since 2007 and what will drive all the events over the next decade. Predicting specific events is a futile human endeavour. The world is so complex and individual human beings so impulsive and driven by emotion, that the possible number of particular outcomes is almost infinite.

But, as Strauss and Howe point out, the core elements that created this Crisis and the reaction of generational cohorts to the implications of debt, civic decay and global disorder will drive all the events that will occur in 2012 and for as far as the eye can see. Linear thinkers in mega-corporations, mainstream media and Washington D.C. focus on retaining the status quo, their power and their wealth. They believe an economic recovery can be manufactured through monetary manipulation and Keynesian borrowing and spending. They are blind to the fact that history is cyclical, not linear. In order to have an understanding of what could happen in the coming year, it is essential to keep the big picture in focus. As we enter the fifth year of this twenty year Crisis period, there is absolutely no chance that 2012 will see an improvement in our economy, political atmosphere or world situation. Fourth Turnings never de-intensify. They exhaust themselves after years of chaos, conflict and turmoil. I can guarantee you that 2012 will see increased mayhem, riots, violent protests, recessions, bear markets, and a presidential election that will confound the establishment. All the episodes which will occur in 2012 will have at their core one of the three elements described by Strauss & Howe in 1997: Debt, Civic Decay, or Global Disorder.

Debt – On the Road to Serfdom

The world is awash in debt. Everyone is focused on the PIIGS with their debt to GDP ratios exceeding the Rogoff & Reinhart’s 90% point of no return. But, the supposedly fiscally responsible countries like Germany, France, U.K., and the U.S. have already breached the 90% level. Japan is off the charts, with debt exceeding 200% of GDP. These figures are just for the official government debt. If countries were required to report their debt like a corporation, their unfunded entitlement promises to future generations are four to six times more than their official government debt.

Any critical thinking person can look at the chart above and realize that creating more debt out of thin air to solve a debt problem is foolish, dangerous, and self serving to only bankers and politicians. The debt crisis took decades of terrible choices and bogus promises to produce. The world is now in the midst of a debt driven catastrophe. At best, the excessive levels of sovereign debt will slow economic growth to zero or below in 2012. At worst, interest rates will soar as counties attempt to rollover their debt and rolling defaults across Europe will plunge the continent into a depression. The largest banks in Europe are leveraged 40 to 1, therefore a 3% reduction in their capital will cause bankruptcy. Once you pass 90% debt to GDP, your fate is sealed.

“Those who remain unconvinced that rising debt levels pose a risk to growth should ask themselves why, historically, levels of debt of more than 90 percent of GDP are relatively rare and those exceeding 120 percent are extremely rare. Is it because generations of politicians failed to realize that they could have kept spending without risk? Or, more likely, is it because at some point, even advanced economies hit a ceiling where the pressure of rising borrowing costs forces policy makers to increase tax rates and cut government spending, sometimes precipitously, and sometimes in conjunction with inflation and financial repression (which is also a tax)?”Rogoff & Reinhart

The ECB doubling their balance sheet and funnelling trillions to European banks will not solve anything. The truth that no one wants to acknowledge is the standard of living for every person in Europe, the United States and Japan will decline. The choice is whether the decline happens rapidly by accepting debt default and restructuring or methodically through central bank created inflation that devours the wealth of the middle class. Debt default would result in rich bankers losing vast sums of wealth and politicians accepting the consequences of their false promises. Bankers and politicians will choose inflation. They believe they can control the levers of inflation, but they have proven to be incompetent, hubristic, and myopic. The European Union will not survive 2012 in its current form. Countries are already preparing for the dissolution. Politicians and bankers will lie and print until the day they pull the plug on the doomed Euro experiment.

The false storyline of debt being paid down in the United States continues to be propagated by the mainstream press and decried by Paul Krugman. The age of austerity storyline gets full play on a daily basis. Total credit market debt in 2000 was $27 trillion. It skyrocket to $42 trillion by 2005 as George Bush and Alan Greenspan encouraged delusional Americans to defeat terrorism by leasing SUVs and live the American dream by putting zero down on a $600,000 McMansion, financing it with a negative amortization no doc loan. Paul Krugman got his wish as a housing bubble replaced the dotcom bubble. Debt accumulation went into hyper-speed in 2006 and 2007 as Wall Street sharks conducted a fraudulent feeding frenzy by peddling their derivatives of mass destruction around the globe. By the end of 2007, total credit market debt reached $51 trillion.

In a world inhabited by sincere sane leaders, willing to level with the citizens and disposed to allow financial institutions that took world crushing risks to fail through an orderly bankruptcy process, debt would have been written off and a sharp short contraction would have occurred. The stockholders, bondholders and executives of the Wall Street banks would have taken the losses they deserved. Instead Wall Street used their undue influence, wealth and power to force their politician puppets to funnel $5 trillion to the bankers that created the crisis while dumping the debt on taxpayers and unborn generations. The Wall Street controlled Federal Reserve provided risk free funding and took toxic mortgage assets off their balance sheets. The result is total credit market debt higher today than it was at the peak of the financial crisis in March 2009.


Our leaders have done the exact opposite of what needed to be done to address this debt crisis. The country is adding $3.7 billion per day to the National Debt. With the debt at $15.2 trillion, we have now surpassed the 100% to GDP mark. The National Debt will be $16.5 trillion when the next president takes office in January 2013. Ben Bernanke has been able to keep short term interest rates near zero and the non-existent U.S. economic growth and European disaster has resulted in keeping long-term rates near record lows. Despite these historic low rates, interest on the National Debt totalled $454 billion in 2011, an all-time high. The effective interest rate was approximately 3%. If rates stay at current levels, interest will be between $400 and $500 billion in 2012. Each 1% increase in rates would cost American taxpayers an additional $150 billion. A rapid increase in rates to the 7% level would ratchet interest expense above $1 trillion and destroy the last remaining vestiges of Bernanke’s credibility. It can’t possibly happen in 2012. Right? The world has total confidence in pieces of paper being produced at a rate of $3.7 billion per day.

Confidence in Ben Bernanke, Barack Obama and the U.S. Congress is all that stands between continued stability and complete chaos. What could go wrong? Debt related issues that will likely rear their head in 2012 are as follows:

  • A debt saturated society cannot grow. As debt servicing grows by the day, the economy losses steam. The excessive and increasing debt levels will lead to a renewed recession in 2012 as clearly detailed by ECRI, John Hussman and Hoisington Investment Management.

“Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet. And that has profound implications for both Main Street and Wall Street.” – ECRI 

At present, we observe agreement across a broad ensemble of models, even restricting data to indicators available since 1950 (broader data since 1970 imply virtual certainty of recession). The uniformity of recessionary evidence we observe today has never been seen except during or just prior to other historical recessions.-  John Hussman 

Negative economic growth will probably be registered in the U.S. during the fourth quarter of 2011, and in subsequent quarters in 2012. Though partially caused by monetary and fiscal actions and excessive indebtedness, this contraction has been further aggravated by three current cyclical developments: a) declining productivity, b) elevated inventory investment, and c) contracting real wage income. In summary, the case for an impending recession rests not only on cyclical precursors evident in productivity, real wages, and inventory investment, but also on the disfunctionality of monetary and fiscal policy. – Van Hoisington 

  • The onrushing recession will send housing down for the count. With 2.2 million homes already in the foreclosure process and another 13 million homes with negative or near negative equity, the recession will push more people over the edge. As foreclosures rise a self reinforcing loop will develop. Home prices will fall as banks dump houses at lower prices, pushing millions more into a negative equity position. Home prices will fall another 5% to 10% in 2012, with a couple years to go before bottoming.
  • The recession will result in companies laying off more workers. It won’t be as dramatic as 2008-2009 because companies have already shed 6 million jobs. The working age population will increase by 1.7 million, the number of people employed will go up by 1 million, but the official unemployment rate will drop to 7% as the BLS reveals that 10 million people decided to relax and leave the workforce. Surely I jest. The government manipulated unemployment rate will rise above 9%, while the real rate will surpass 25%.
  • The American people rationally increased their savings rate to 6.2% in the 2nd Quarter of 2009. When you are over-indebted and the country heads into recession, spending less and saving more is a sane option. Consumer expenditures accounted for 69% of GDP in 2007, prior to the economic collapse. The “recovery” of 2010-2011 has been driven by Ben’s zero interest rate policy, the resumption of easy credit peddling by the Wall Street banks, and consumers convinced that going further into hock to attain the American dream is rational. Consumer spending as a percentage of GDP has actually risen to 71% and the savings rate has plunged to 3.6%. The 20% drop in gas prices since April bottomed in December. This decline temporarily boosted consumer spending, but prices are on the rise again. With the State and local governments reducing spending, do the Wall Street Ivy League economists really believe consumers will increase their consumption to 73% of GDP and reduce their savings rate to 1%? If you open your local newspaper you will see the master plan. Car dealers are offering 0% financing with nothing down for 60 months. The GMAC/Ditech/Ally Bank zombie lives as subprime auto loans are back. The “strong” auto sales are a debt financed illusion. Ashley Furniture is offering 0% financing for 50 months with no payments through Wells Fargo Bank. When the Federal Reserve provides the Wall Street banks with 0% funding, banks are willing to take big risks knowing that Uncle Ben and the naive American taxpayer will be there to bail them out when it blows up again.
  • With recession a certainty as fiscal stimulus wears off, home prices fall, employment stagnates, and consumer spending grinds to a halt, what will happen to the stock market? The Wall Street shills paraded on CNBC and interviewed by the multi-millionaire talking head twits assure you that stocks are undervalued and the market will surely be up 10% to 15% by 2013. It’s a mortal lock, just as it has been for the last twelve years, with the S&P 500 at the same level as January 1999. The fact is the stock market drops 30% on average during a recession. The talking heads declare that corporate profits are at record levels and will continue higher. Not bloody likely. Corporate profit margins are at an all-time peak about 50% above their historical norms. Profits always revert to their mean. These profits are not sustainable as they were generated by firing millions of workers, zero interest rates for banks, fraudulent accounting by the banks, and trillions in handouts from the middle class taxpayers to corporate America.

In a true free market excess profits will draw more competitors and profits will fall due to competition. When corporate profits exceed the mean by such a large amount, you can conclude that crony capitalism has replaced the free market. Government bureaucrats have been picking the winners (Wall Street, War Industry, Big Media, Big Healthcare) and the American people are the losers. Corporate oligarchs prefer no competition so they can reap obscene risk free profits and reward themselves with king-like compensation. Mean reversion will eventually be a bitch. Real S&P earnings have reached the 2007 historic peak. To believe they will soar higher as we enter a recession takes the same kind of faith shown by Americans buying a $600,000 McMansion in Stockton with no money down in 2005. The result will be the same. Do you ever wonder how corporations are doing so well while the average American sinks further into debt, despair and poverty?

The brilliant John Hussman captures the gist of an investor’s dilemma in his latest article:

“With 10-year Treasury yields below 2%, 30-year yields below 3%, corporate bond yields below 4%, and S&P 500 projected 10-year total returns below 5%, we presently have one of the worst menus of prospective return that long-term investors have ever faced. The outcome of this situation will not be surprisingly pleasant for any sustained period of time, but promises to be difficult, volatile, and unrewarding. The proper response is to accept risk in proportion to the compensation available for taking that risk. Presently, that compensation is very thin. This will change, and much better opportunities to accept risk will emerge. The key is for investors to avoid the allure of excessive short-term speculation in a market that promises – bends to its knees, stares straight into investors’ eyes, and promises – to treat them terribly over the long-term.”


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The moral unraveling of the EU, bailouts and central banking

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by Anthony Wile
from The Daily Bell
Saturday, October 15, 2011

SLOVAKIA HAS NOW APPROVED THE EUROPEAN DEBT-CRISIS bailout fund, but the problems Europe is experiencing are similar to those faced by America in the grip of the Fed’s immense bailouts of the past two years. Increasingly, these are seen as morally repugnant by citizens throughout the West. And this has significant consequences that the mainstream press declines to report.

Dominant social themes work by omission as well as commission; in this column, I want to re-examine potential ramifications. I’ve done it before, but I think it’s worth repeating. Not enough commentators, even in the alternative media, point them out in my humble opinion.

Money continues to flood Western regimes and financial institutions with billions and billions that they don’t deserve and cannot properly apply. Perhaps there is no alternative but to “kick the can down the road.” On the other hand, perhaps the bailouts are part of a wider elite destabilization effort, one intended to generate chaos and misery that will pave the way for global governance and maybe a new world currency. This is the view of the more conspiratorially-minded among the alternative media.

For whatever reasons, the bailouts, against all logic, continue apace and are being increasingly resisted … not merely for their Draconian impacts but because people are using technology to become more informed. This bailout saga, therefore, has been unusual, not only for the incalculable wealth that’s been extended but also because it’s played out in front of millions.

The ramifications continue to be felt in my view. The push-back began in the US with TARP and then continued with revelation of US$16 trillion-plus (probably more) in short-term loans extended by the US Federal Reserve to financial institutions – not just in America but around the world.

Now US Congressman Ron Paul is conducting the Federal Reserve’s first “audit.” Ben Bernanke speaks, but his pronouncements have nowhere near the power or authority of his predecessor Alan Greenspan. Occupy Wall Street and alternative journo Alex Jones are both holding organized protests outside Fed buildings. In Southern Europe, protests and riots (Greece) rise wherever the EU and its bankers attempt to impose “austerity.”

The Internet has allowed people to see – finally – exactly what’s going on. Prior to the Internet, the controlled mainstream news would have explained in unison that the Fed “made massive adjustments to the global financial fabric to ensure that systemic collapse was mitigated …” or employed other nonsensical euphemisms. These sorts of non-explanations would have been repeated ad nauseum.

But in the era of the Internet, such gobbledygook has been effectively negated by literally millions of articles (and thousands of videos) explaining what central banking really is – monetary price fixing – and how central bankers “print money from nothing” to advantage their cronies at the expense of everyone else.

The system survived because it appeared so incomprehensible that it was beyond criticism. Not anymore. People around the world “get it” and the anger is breaching even the indolence of the political class. Eventually, if certain fundamental knowledge becomes widespread enough, the elites may have to take a “step back” as we have predicted they might. Resistance is spreading.

We can see this in Slovakia, where that Eastern European nation was the last holdout among euro-zone nations to approve the EU’s most recent sovereign bailout fund. On Tuesday, the parliament rejected the fund and brought down the government of Prime Minister Iveta Radicova. On Thursday, the parliament voted FOR it, but the point had been made.

Even parliamentary representatives, notoriously resistant to the public sentiment they are supposed to be accommodating, are now beginning to reflect the animosity of their constituents. The Telegraph‘s Ambrose Evans-Pritchard recently captured this sentiment in a column entitled, “EU bailout is racket for financial elites.”

Twenty years ago, no mainstream paper in the world would have run such an article – even given today’s extreme stress and provocation. But times have changed. The financial system has come in for criticism the likes of which has not been seen (or heard) for decades. Here’s an excerpt from Evans-Pritchard’s article:

What the Slovak debate has shown us yet again – as if the political storm in Germany over the past two months has not been enough – is that escalating bailouts are nearing their political limits. The traumatic affair almost brought down the German government. It has in fact brought down the Slovak government. You can’t keep doing this. Democracies are not to be toyed with …

Slovakia’s cry of defiance has not been entirely pointless. Richard Sulik – the speaker of parliament – has caught a mood of popular disgust that goes far beyond his own country. His objections are unanswerable.

How can there be any justification for a state of affairs where a poor but rule-abiding EMU state must bail out a serial violator with twice the per capita income, and triple the level of the pensions – a country which is in any case irretrievably bankrupt? How can it be that the no-bail clause of the Lisbon Treaty has been ripped up?

But he also touched on the most neuralgic issue, reminding everybody that the EFSF is ‘mainly for saving foreign banks’. These are French, German, British, Dutch, and Belgian banks, of course … ‘I’d rather be a pariah in Brussels than have to feel ashamed before my children,’ Sulik said … Bravo.

“Bravo,” writes Evans-Pritchard, summing up the New Age’s defiance to establishment ways. We began to write about this back in August of 2009 when The Market Oracle’s Stewart Dougherty – a financial consultant – sent us a column entitled “The Metastasis of Moral Hazard and its Effect on Gold.” He wanted us to see what he’d written. Here’s an excerpt:

The colossal miscalculation made by Washington and Wall Street is that they could control the moral hazard genie once they removed it from the bottle. They believed they could use the genie to enrich themselves with trillions of dollars’ worth of taxpayer money, and then replace it in the bottle before its magic spell of immorality metastasized throughout society at large. They assumed that the people would be too stupid to see what was going on. And that even if the people did figure things out, they would willingly wear the thick, choking chains of debt being welded to their necks by the financial elite and its Washington enablers.

Instead, thanks to the Internet and the democracy of information and insight it affords, the people were instantly wise to what was happening, and it stirred them. The concept of “an eye for an eye, a tooth for a tooth,” harkens to the Bible. And perhaps Shylock was speaking for all of humanity when he said, “If you prick us, do we not bleed? If you tickle us, do we not laugh? If you poison us, do we not die? If you wrong us, shall we not revenge?”

We thought then, and believe now, that Dougherty wrote one of the decade’s most profound columns, capturing the MORAL dimension of the fraud of “bailouts” and the impact of their fundamental – even obscene – unfairness. We wrote about his column (you can see it here: Have the Immoral Actions of Central Bankers Precipitated the Decline of the West?) and commented:

Dougherty has written a REAL article of REAL observations about the end of Western civilization. Sheesh, … Spengler’s Decline of the West in three darn pages … He’s right, he has gotten the morality right. It’s not just the culture of the West, or its promotions, or even its social organization that is finished.

You CANNOT, as a society, witness a couple of guys pull a trillion out of their back pockets without feeling, well … snookered. And after feeling snookered, something else begins to percolate. “Hey,” you say, “wait a minute. I sit here with my debts and my job and my house in foreclosure and this guy – THIS GUY – throws around trillions? Wait a minute. WHEN DO I GET MINE!”

Now the rage spreads.

The Internet Reformation is a process, not an episode.

Zero percent interest rates lock in inflation

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by Greg Hunter
USAWatchdog.com 
Posted 17 August 2011

THE DECISION BY THE FED, LAST WEEK, TO KEEP A KEY INTEREST RATE at near zero percent for 2 years is historic because the Fed has never done this before.  This action will have profound negative effect on the U.S. dollar and its buying power. It also signals that even the Fed thinks the economy is not going to get better for at least 2 years.

This action will affect every American and telegraphs a policy of inflation by the government. In November of 2009, I predicted this very path in a post called The Fix is In. Back then, I said, “It appears the “fix” is in as far as the road plan for the U.S. dollar and economy. The government and the Fed appear to have chosen a path of inflation for America and the world. This is not an official announced plan but it might as well be.”   (Click here for the original post.)

Zero percent interest on a key Fed rate confirms my prediction right along with the rising inflation in just about everything except housing. In an extensive post about inflation this week, Theburningplatform.com said, “The storyline being sold to you by Bernanke, his Wall Street masters, and their captured puppets in Washington DC is that deflation is the great bogeyman they must slay. They make these statements from their ivory jewel encrusted towers as the real people in the real world deal with reality. The reality since Ben Bernanke announced his QE2 policy in August 2010 is:

 • Unleaded gas prices are up 45%.

 • Heating oil prices are up 46%.

 • Corn prices are up 71%.

 • Soybean prices are up 26%.

 • Rice prices are up 13%.

 • Pork prices are up 31%.

 • Beef prices are up 25%.

 • Coffee prices are up 38%.

 • Sugar prices are up 48%.

 • Cotton prices are up 13%.

 • Gold prices are up 42%.

 • Silver prices are up 115%.

 • Copper prices are up 23%.

The official inflation rate is 3.6%, but anybody with an IQ above 70 knows that’s a statistical lie. According to economist John Williams of Shadowstats.com, the true annual inflation rate is around 11% (if calculated the way Bureau of Labor Statistics did it in 1980). In his latest report, Williams warns the dollar is in serious trouble because the Fed is not interested in fighting inflation when it needs to continue propping up the banking system.

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It’s the unfunded wars and the financial fraud, and the unwillingness to reform

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from Jesse’s Café Américain
Posted August 7, 2011

YES, THE US HAS SOME VERY REAL LONG-TERM ISSUES WITH SOCIAL SECURITY AND MEDICARE. Social Security is being strangled by the refusal to raise the income limit on the Social Security withholding tax in response to the gradual creep of inflation. If this limit was raised periodically the Social Security ‘problem’ would be resolved. 

Medicare and in particular the drug portions of the program added by the Bush II administration are driving costs much higher. And this is more of a problem because of the structural cost problems in US healthcare system. Big Pharma in the US is a powerful lobbying force, and Americans pay MUCH higher costs per benefit for their health care services.  This is inhibiting the steps that are needed to restructure the US healthcare system.

But Social Security and Medicare, without the drug program, have not substantially changed since the 1990’s, when the US was running a budget surplus, and then Fed Chairman Greenspan was reassuring the public that the Fed had a plan to deal with the lack of debt.

So what changed?

The repeal of Glass-Steagall and the growth of unregulated financial products, the co-opting of the regulatory agencies, the growth of corporate influence in Washington, and two unfunded and very costly wars of long duration, founded largely on lies and distortions following a despicable terror attack by a small group of people, coupled with tax cuts for the wealthy.

There is relatively little discussion, much less investigation, indictments and convictions, from one of the largest financial frauds in history.

And within twelve months of the crisis breaking, Wall Street bonuses were back to record levels, even as the rest of the country began its long downward spiral into debt, downgrade, and despair.

That is the long and short of it. And it bodes ill that these issues are so infrequently mentioned in the political and economic discussions circling Washington and New York today. Rational discussion and factual analysis has been overwhelmed by a well funded program of propaganda and sloganeering, and bought and paid for politicians and media which serve to direct the discussions according to the program of the monied interests.

And this is why the outlook for the US is so negative. Governance has failed, the system has been thoroughly corrupted or co-opted, and the planning and discussions cannot gain traction. Some have recently referred to Obama’s clarity gap because it is so unclear what he stands for, what principles he is willing to fight for.

The politicians of both parties, the media, and the business leadership are caught in a credibility trap in which the root causes cannot even be discussed, must less addressed, because they have all been involved in or benefited from a massive injustice in the financial frauds. They are complicit, and cannot act openly and honestly for fear of losing control of the debate, and of subsequent discovery.

“Every thing secret degenerates, even the administration of justice; nothing is safe that does not show how it can bear discussion and publicity.” – Lord Acton

And who do we see on American television this morning, providing economic advice and promoting the Wall Street prescription for a cure through a return to more bank deregulation? The angel of economic death, Alan Greenspan, a man without shame or honor as one of the great authors of the misrepresentations and mismanagement that led US into the financial crisis which rewarded the few at the expense of the many.

“The liberties of a people never were, nor ever will be, secure, when the transactions of their rulers may be concealed from them.” – Patrick Henry

The real issue at the end of the day is reform. The US has been led down a dark alley and strangled in what history may recognize as a financial coup d’etat, and a campaign of economic war against the common people. The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

Too big to fail? Ten banks own 77% of all U.S. banking assets

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from The Economic Collapse
Posted July 18, 2011 

BACK DURING THE FINANCIAL CRISIS OF 2008, the American people were told that the largest banks in the United States were “too big to fail” and that was why it was necessary for the federal government to step in and bail them out. The idea was that if several of our biggest banks collapsed at the same time the financial system would not be strong enough to keep things going and economic activity all across America would simply come to a standstill. Congress was told that if the “too big to fail” banks did not receive bailouts that there would be chaos in the streets and this country would plunge into another Great Depression.  Since that time, however, essentially no efforts have been made to decentralize the U.S. banking system.

Instead, the “too big to fail” banks just keep getting larger and larger and larger. Back in 2002, the top 10 banks controlled 55 percent of all U.S. banking assets.  Today, the top 10 banks control 77 percent of all U.S. banking assets.  Unfortunately, these giant banks are also colossal mountains of risk, debt and leverage. They are incredibly unstable and they could start coming apart again at any time. None of the major problems that caused the crash of 2008 have been fixed. In fact, the U.S. banking system is more centralized and more vulnerable today than it ever has been before.

It really is difficult for ordinary Americans to get a handle on just how large these financial institutions are.  For example, the “big six” U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to approximately 60 percent of America’s gross national product.

These huge banks are giant financial vacuum cleaners. Over the past couple of decades we have witnessed a financial consolidation in this country that is absolutely unprecedented. This trend accelerated during the recent financial crisis. While the big boys were receiving massive bailouts, the hundreds of small banks that were failing were either allowed to collapse or they were told that they should find a big bank that was willing to buy them.

As a group, Citigroup, JPMorgan Chase, Bank of America and Wells Fargo held approximately 22 percent of all banking deposits in FDIC-insured institutions back in 2000. By the middle of 2009 that figure was up to 39 percent.

That is not just a trend – that is a landslide. Sadly, smaller banks continue to fail in large numbers and the big banks just keep growing and getting more power. Today, there are more than 1,000 U.S. banks that are on the “unofficial list” of problem banking institutions. In the absence of fundamental changes, the consolidation of the banking industry is going to continue.

Meanwhile, the “too big to fail” banks are flush with cash and they are getting serious about expanding. The Federal Reserve has been extremely good to the big boys and they are eager to grow. For example, Citigroup is becoming extremely aggressive about expanding and has been hiring dozens of investment bankers, dialing up advertising and drawing up plans to add several hundred branches worldwide, including more than 200 in major cities across the United States.

Hopefully the big banks will start lending again. The whole idea behind the bailouts and all of the “quantitative easing” that the Federal Reserve did was to get money into the hands of the big banks so that they would lend it out to ordinary Americans and get the economy rolling again. Well, a funny thing happened.  The big banks just sat on a lot of that money. In particular, what they did was they deposited much of it at the Fed and drew interest on it. Since 2008, excess reserves parked at the Fed have grown by nearly 1.7 trillion dollars.  Just check out the chart posted below….

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Overdose: The Next Financial Crisis

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by Jeff Harding
Posted July 16th, 2011

THIS MOVIE, ON THE SUBJECT OF THE CAUSES OF THE FINANCIAL CRISIS, was produced in Sweden by Henrik Devell, directed by Martin Borgs, and narrated by Johan Norberg, a Senior Fellow at Cato Institute, and a prominent libertarian and frequent guest on Stossel. It is very professionally done and entertaining. You can see it right here on The Daily Capitalist Theater. Turn your video setting up to 720p. It is a feature length film, 46 minutes, so sit back and enjoy it.

Here is a description of from their web site:

In times of crisis people seek strong leaders and simple solutions. But what if their solutions are identical to the mistakes that caused the very crisis? This is the story of the greatest economic crisis of our age, the one that awaits us.

When the world’s financial bubble blew, the solution was to lower interest rates and pump trillions of dollars into the sick banking system. “The solution is the problem, that’s why we had a problem in the first place”. For Economics Nobel laureate Vernon Smith, the Catch 22 is self-evident. But interest rates have been at rock bottom for years, and governments are running out of fuel to feed the economy. “The governments can save the banks, but who can save the governments?” Forecasts predict all countries’ debt will reach 100% of GDP by next year. Greece and Iceland have already crumbled, who will be next?

The storm that would rock the world, began brewing in the US when congress pushed the idea of home ownership for all, propping up those who couldn’t make the down payments. The Market even coined a term, NINA loans: “No Income, No Assets, No Problem!” Enter FannieMae and FreddieMac, privately owned, government sponsored. “Want that vacation? Wanna buy some new clothes? Use your house as a piggie bank!” Why earn money to pay for your home when you can make money just living in it? With the government covering all losses, you’d have been a fool not to borrow.

The years of growth had been a continuous party. But when the punchbowl ran dry, instead of letting investors go home to nurse their hangovers as usual, the Federal Reserve just filled it up again with phoney money. For analyst Peter Schiff, the consequence of the spending binge was crystal clear: “we’re in so much trouble now because we got drunk on all that Fed alcohol”. Yet along with other worried experts, he was mocked and derided during the boom.

Have you taken out a mortgage, invested capital or bought shares? If you have, likelihood is you lost out in the latest bust. Governments promised decisive action, the biggest financial stimulus packages in history, gargantuan bailouts: but what crazed logic is this, propping up debt with…more debt? This documentary brings an entirely fresh voice to the hottest topic of today.

Great Depression comes knocking

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from The Daily Bell
Posted July 13, 2011

China’s Economy Grows 9.5%, Exceeding Estimates … China’s economy and industrial production expanded more than analysts predicted, indicating the nation is maintaining momentum even after interest-rate increases to cool inflation. Gross domestic product rose 9.5 percent in the second quarter from a year earlier, the statistics bureau said in Beijing today, after a 9.7 percent gain the previous three months. The median estimate was for a 9.3 percent pace in a Bloomberg News survey of 18 economists. Industrial output advanced 15.1 percent in June, the most since May 2010. – Bloomberg 

Dominant Social Theme:
See, things are good! China is in a good shape, Europe is recovering and America has the political will to deal with its problems. Recovery is on the way. No problem!

Free-Market Analysis:
We are not convinced by the endless stream of happy talk that emanates from the mainstream media these days. Our view is less benign. From what we can see, the world is descending into a kind of controlled (or uncontrolled) Great Depression. It’s taking time but the arc is clear.

This article will illustrate yet again how mainstream media covers the world – China in particular – and why the reality is so much different. We regularly observe that the world’s conversation is organized via the Anglosphere elites’ “dominant social themes.” These fear-based promotions are intended to strip wealth and prosperity from the middle class in order to increase control of globalist institutions. But the Anglosphere elites also work via OMMISSION. That is, in addition to advocating fear, they actively encourage ignorance.

We are well past considering it to be coincidence. The world’s economy is a kind of planned madhouse. Those in power have inflicted upon it scores of central banks – all busily printing/creating money from nothing at the push of a button. Those who run these central banks are well aware of their ruinous disposition. They understand fully the boom bust cycle that brings bankruptcy and hopelessness to so many. But one does not ever acknowledge this. If one works within the system, one is not supposed to.

In the upside-down world of modern finance, central bankers who print money are “hawkish inflation fighters.” Politicians who endlessly create the distortive price fixes, called “laws,” are “public servants.” Corporate leaders who generate profits by linking their companies to the great, grinding machinery of Western legislation are “entrepreneurs.”

Mainstream media coverage provides us with a disparate view: Each element of the puzzle is treated incidentally. Sometimes the news is good, sometimes bad. But … somehow … the Western world’s economic situation continues to erode.

What is the result? Sooner or later, planned or not, the conclusion shall be reached. It will presented as a coincidental fait accompli, a solution that has occurred quite by accident, an evolution that seems inevitable but was not in any sense (so we are to believe) preordained: What is to be the apex of all this? A shiny new world order, perhaps, complete with a global currency.

In the meantime we are not supposed to notice the truth. Not ever. And what are the over-riding sub-dominant social themes when it comes to the world’s non-existent economic recovery? In no particular order … Europe’s crisis is being dealt with; America is on the rebound; the BRICS are healthy and China continues to expand at a rapid pace while controlling inflation. If you believe this, dear reader, we have a bridge to sell you in downtown Brooklyn, NY.

There is ample evidence that none of this is as it seems. The US is broke. Involved in an ever-spreading war on terror, American political and corporate elites can’t agree on how to confront an impending national default. In Brussels, powerful Eurocrats are meeting for the umpteenth time to deal with a sovereign crisis that never seems to go away.

Price inflation? China and the BRICS generally continue to announce that price inflation is under control: Every month the leaders of these countries assure it is so, while continuing to put into place Draconian price-fixing policies to control what is already controlled. It IS controlled. They tell us so.

In fact, America is staggering; it is finally retreating from its horrible wars not because the military-industrial complex wants to, but because it has to. The Pentagon, like the rest of the country, is broke. Europe is broke, too. And China has printed so much money that it has had to forbid people from buying and selling real estate.

There are more problems. Japan is reeling from a devastating earthquake. Russia is collapsing into a morass of corruption leavened only by additional “terrorism” and Africa faces devastating drought accompanied by “food insecurity” that threatens starvation for tens of millions.

Listen to the mainstream media and none of the above is placed into perspective. The reporting is serial and disconnected. In many cases it is determinedly optimistic. It wouldn’t do for elite media to admit the truth. The idea that the Western dollar reserve system basically died in 2008 and only the injection of some US$50 TRILLION around the world has saved the system from complete collapse is not an acceptable epiphany.

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